Characteristics of Consumer Credit
The nature of consumer
credit may be the transfer of wealth to consumers for purchase of semi durables
or durables except real estate where the payment is deferred in whole or in
part upon agreed terms the agreed terms for repayment may be in the form of
Consumer Finance Transactions
The nature of consumer finance transactions may be
(a) Parties and
Structure of the Transaction: The parties and the
structure of the transaction may be either (i) Bipartite (ii)
A bipartite transaction involves two parties i.e.
A tripartite transaction involves three parties
Transactions can either
be structured in the form of hire purchase, conditional sale or credit sale,
but a majority of the tripartite consumer finance transactions are of the hire
(b) Payment for the
transaction: The payment for specific transactions is
divided into two categories: (i) Down Payment Schemes (ii) Deposit
The down payment varies
from initial payments ranging from 20%-25% of the value of goods and financing
is available for 75%-80% or as the case may be.
In a deposit-linked
scheme, the down payment in the form initial deposit varying from 15% and 25%
of the total value of the asset. The financier pays the full amount to the
seller. Deposits carry a prescribed interest rate. Zero Deposit schemes are
also available, under which the Equated Monthly Installment (EMI) is higher
than the EMI under normal deposit schemes.
Repayment Period The
repayment period ranges from 12-60 months. Finance companies notify the
customer indicating the amount of equated monthly installments to be paid
through postdated Cheques.
asset is secured through first charge on it for the credit provided. The
borrower is prohibited from disposing, pledging or hypothecating the
asset during above said credit period.
Criteria for Borrowers There is no specific criteria for
borrowers, all the borrowers in the form of individuals, partnership
firms, private and public limited companies are eligible to borrow.